Indonesia

Indonesia in-depth introduction

Result of Indonesia's tax amnesty program

Automatic exchange of information (AEOI) will be implemented starting from 2018 for Indonesia, enabling the data of taxpayers' overseas assets to be easily identified by the government. Banking laws will also be revised in terms of data transparency for tax purposes. As a result, taxpayers can no longer hide from the tax authority.

Before the information transparency era starts, the government introduced a breakthrough policy in the form of Tax Amnesty started on July 1 2016.

The Indonesia's nine-month tax amnesty program ended on March 31 2017. It has been labelled as one of the most successful amnesty programs ever around the globe from the amount of assets declaration.

Referring to the objective of the program, the achievement is shown in Table 1.

Table 1

Program target

Program achievement

Using asset repatriation as an economic growth source

IDR 147 trillion ($ 11 billion) which is 14.7% of the target of IDR 1,000 trillion

Expanding taxation data base

Taxpayers joining the program are 956,793 out of 36 million registered taxpayers

New registered taxpayers during the program: 53,000

Increasing both short-term and long-term tax revenue

Collected tax revenue: IDR 134.55 trillion

New assets declared: IDR 4,884 trillion

Development of tax audit procedure

Upon completion of the tax amnesty program, the Directorate General of Taxes (DGT) has modified the procedures for field tax audit to be in accordance with Director General of Taxes Regulation No. PER-07/PJ/2017and Director General of Taxes Circular Letter No. SE-10/PJ/2017, which also regulates the tax audit procedures for taxpayers participating in the tax amnesty program.

Previously, DGT issued tax audit instruction letter first and then requested data from taxpayer. Now the game has changed. Before issuing the tax audit instruction letter, the DGT will establish early findings by analysing the data that it internally acquired to have some early findings. Then the taxpayer is summoned to come to the tax office to have a first meeting with the tax auditor. This summons letter is given to the taxpayer together with the tax audit instruction letter and details the schedule of this initial meeting and a list of requested documents. Both parties will then compare information and data. The audited taxpayer must attend the meeting and cannot be represented, but may be accompanied by a consultant. The meeting should be conducted at the tax office within five working days from the date of the summons letter and will be documented with an audio and visual recorder.

If the taxpayers do not arrive at the scheduled time according to the summons, without confirming with the officer, they are considered absent and an official report of absence will be made.

By the end of the meeting, the taxpayer together with the tax auditor will sign minutes of the meeting that become the basis for the tax auditor to start the tax audit at the taxpayer's location within one month. Subsequent events after this initial meeting follow the existing tax audit procedure.

With this change of procedure, tax auditors are expected to generate a fair tax assessment in accordance with the taxation regulations and taxpayers' real condition. This could eventually lead to gaining trust of the taxpayers and their awareness in carrying out their tax obligations correctly.

Financial information access for tax purposes

To support the global transparency movement, the Indonesian Financial Service Authority (Otoritas Jasa Keuangan; OJK) published OJK Regulation No. 25/POJK.03/2015, which regulates the domestic rule regarding automatic exchange of information with other countries. The implementing regulation was issued in April 2017 after the completion of the tax amnesty program. OJK Circular Letter No. 16/SEOJK.03/2017 regulates the submission of information on foreign customers related to taxes in the context of international automatic exchange of information (AEOI) by using the common reporting standard (CRS).

The Global Forum set June 30 2017 as the deadline to have domestic legal framework implemented in order to be considered as fulfilling the commitment to support the global transparency movement.

To facilitate the DGT in getting access to taxpayers' financial data from financial institutions as a step to increase tax revenue after the end of the tax amnesty period, the Government Regulation in lieu of Law No. 1 Year 2017 (Perpu 1/2017) was issued on May 8 2017. Towards the deadline set by Global Forum, MoF Regulation No. 70/PMK.03/2017 was issued on May 31 2017 and later amended by MoF Regulation No. 73/PMK.03/2017, dated June 12 2017. Perpu 1/2017 was later made into Law No. 9 Year 2017 regarding access to financial information for tax purposes on August 23 2017. The law and its implementing legislations regulate the subject, object, procedure and guarantee of confidentiality on the disclosure of financial information.

Application of tax treaties

The DGT has issued an updated regulation on the procedures for the implementation of double taxation agreements (DTAs). The purpose of DGT Regulation No. 10/PJ/2017 (PER-10), dated June 19 2017, is to avoid the abuse of DTA. There are some obligations for the withholding taxpayer and requirements for the overseas taxpayer to be declared as a beneficial owner (BO), which must be considered before the withholding taxpayer withholds tax. The requirements for BO as stated in PER-10 are more rigid. For example, previously it was stated that one of the requirements to be a BO is that no more than 50% of the entity's income is used to satisfy claims by other persons. PER-10 strictly regulates that "50% of the entity's income" is the amount after salary, operating expenses and profit sharing are deducted from the corporate taxpayer's income.

The BO test will need to be cumulatively fulfilled before a foreign taxpayer can enjoy the reduced tax rates as regulated in the DTA.

Updated controlled foreign company rules

The Indonesian government realised that the current regulations on controlled foreign companies (CFCs) are ineffective, difficult to implement and do not provide businesses with certainty.

The Ministry of Finance Regulation Number 107/PMK.03/2017 (PMK-107) dated and effective July 27 2017 is applicable starting fiscal year 2017. The coverage is expanded and more clearly addressed.

PMK-107 has expanded the scope of CFC legislation through time, and can be summarised as shown in Table 2:

Table 2

KMK-650/KMK.04/1994

256/PMK.03/2008----PER-59/PJ/2010

107/PMK.03/2017

1. Applicable to blacklisted countries only;

2. Applicable to directly owned CFCs;

3. Inconsistent application of deemed dividends;

4. Foreign tax credit (FTC) not clearly addressed.

1. No blacklisted countries;

2. Applicable to directly owned CFCs;

3. Inconsistent application of deemed dividends;

4. FTC not clearly addressed.

1. No blacklisted countries;

2. Clarifies the application of CFCs to indirectly owned CFCs;

3. Consistent application of deemed dividends;

4. FTC addressed.

With these amended CFC rules, Indonesian taxpayers with multiple tier structures should evaluate their investment structure and may want to restructure.

Indonesia market overview

Indonesia is being held back in its development by its low public spending, and only by bringing in more money through taxation can it address this. An OECD economic survey from 2016 stated that Indonesia's tax base was narrow, and that its share of public spending was lower than neighbouring countries at a similar level of development.

The Indonesian President, Joko Widodo, appears willing to address these issues. He has acknowledged that higher tax revenues will play a key role in his government spending more on infrastructure and other social policy issues including health and education. In June 2016, he introduced a tax amnesty which ran until March 2017 and was hailed as one of the world's most successful ever amnesties. The tax amnesty brought in a massive $330 billion for Indonesia as nearly 800,000 taxpayers came forward to legitimise previously undeclared assets.

Widodo's administration has not shied away from taking on large and powerful MNEs operating in Indonesia when it comes to tax issues, either. For instance, the Indonesian government has been involved in a tax dispute with Google. In June 2017, it reached a tax settlement with the tech giant over taxes owed for the year 2016.

In the past year, Indonesia passed PMK-213. This is legislation that reflects BEPS Action 13 on country-by-country reporting (CbCR) and requires the preparation of a master file and local file by certain multinationals.

There have also been calls for tax reform. In July 2017, it was reported that Dorodjatun Kuntjoro-Jakti, a former economic minister of the Indonesian government, said that greater autonomy should be given to the country's local governments. The autonomy would enable local governments, as well as the central government, to raise taxes to increase the tax-to-GDP ratio.

Not all of Indonesia's challenges are internal ones. The current US administration has pulled out of the Trans-Pacific Partnership trade deal, leaving Widodo's earlier commitment to join the deal in tatters. The US has also put Indonesia on its trade abuse probe list. The actions of the US government could be viewed as troubling for Indonesia, however, when US Vice President Mike Pence visited the country, $10 billion worth of deals were agreed between the countries – an achievement for South East Asia's most populous country on its road to prosperity.

GNV Consulting Services is widely recognized as one of the leading tax and customs consulting firms in Indonesia. The firm was established in 2010 by experienced professionals who previously held Partner/Director position in Big Four consulting firms. The key personnel of the firm are Hartiadi B Santoso, Ahdianto, Rahadianto Sudewo and Charles S Oetomo. The firm's personnel comprise individuals with professional certification/licenses as tax and customs consultants and Tax Court attorneys. The firm has served a broad range of multinational companies, including manufacturing, mining companies, banking and financing services, trading services and constructions services. The firm also has recorded many successful in representing clients in the Indonesian Tax Court.

Technical service fees, management service fees, consulting service fees and fees for similar services

2%

D

Construction contracting services

2%

3%

4%

E

Construction planning and supervision

4%

6%

E

Other services

2%

D

Payments to non-residents

20%

F

Branch profits tax

20%

25%

G

A) This rate also applies to Indonesian permanent establishments of foreign companies.

B) A final withholding tax at a rate of 20% is imposed on payments to non-residents. Tax treaties may reduce the tax rate. Certain dividends paid to residents are exempt from tax if prescribed conditions are satisfied. If the exemption does not apply, a 15% withholding tax applies on dividends paid to tax resident companies and a 10% final withholding tax applies to dividends paid to tax resident individuals. A 15% withholding tax is imposed on interest paid by non-financial institutions to residents. Interest paid by banks on bank deposits to residents is subject to a final withholding tax of 20%.

C) This is a final withholding tax imposed on gross rent from land or buildings.

D) This tax is considered a prepayment of income tax. It is imposed on the gross amount paid to residents. An increase of 100% of the normal withholding tax rate is imposed on taxpayers subject to this withholding tax that do not possess a Tax Identification Number.

E) This tax is considered a final tax. The applicable tax rate depends on the type of service provided and the "qualification" of the construction companies. The "qualification" is issued by the authorities with respect to the business scale of a construction company (that is, small, medium or large).

F) This is a final tax imposed on the gross amount paid to non-residents. The withholding tax rate on certain types of income may be reduced under double tax treaties.

G) This is a final tax imposed on the net after-tax profits of a permanent establishment. The rate may be reduced under double tax treaties. The tax applies regardless of whether the income is remitted. An exemption may apply if the profits are reinvested in Indonesia.

H) Losses incurred by taxpayers engaged in certain businesses or incurred in certain areas may be carried forward for up to 10 years.

Directorate General of Taxes

Danny Darussalam Tax Center (DDTC) was established in 2007. It was founded by Darussalam and Danny Septriadi. Darussalam is the head of the tax practice. The practice has five partners and 110 other fee earners. DDTC provides clients with a range of taxation services including corporate income tax, individual income tax, VAT, customs and excise, local tax, property tax and international tax. The practice's clients come from a variety of sectors including automotive, banking, oil and gas, mining and electronics. The firm provides tax seminars and courses for the public. It has established the DDTC Academy which provides a tax training programme. Participants to the firm's tax seminars and courses include the Director General of Taxation (DGT), the tax authorities, tax consultants including the Big 4 and MNEs.

Melisa Himawan is the managing partner and the head of the tax practice at Deloitte. The practice comprises eight partners and 154 professionals. Since May 2016, 22 tax professionals have joined the practice. The firm is part of Deloitte Southeast Asia (DSA). DSA is affiliated with Deloitte Touche Tohmatsu, an international network that has approximately 37,000 professionals in 150 countries. Heru Supriyanto is a tax partner who handles tax disputes. He is the head of the litigation group of the practice. Cindy Sukiman and John Lauwrenz are tax partners who handle the firm's M&A projects. They assist MNEs that work in the oil and gas and mining industries. Skuiman and Lauwrenz assist clients involved in tax disputes with the tax authorities. Turmanto Turmanto is the head of the practice's customs and indirect tax service groups. He advises clients that are engaged in discussions with the customs and tax authorities. He also represents clients in tax disputes.

In 2016, the practice advised a group of insurance companies on a tax authority assessment regarding the deductibility of insurance premium related expenses. Deloitte was able to persuade the tax authority to allow the deductibility of these expenses during the audit.

Santoso Goentoro is the tax services leader of the tax practice at EY. The firm provides a wide range of tax services for its clients. These services include corporate services, VAT, private client services, tax policy and controversy, and transaction tax. The practice is part of EY's global network which comprises 28,000 professionals in more than 120 countries. The enables the practice to provide its clients with tax advice in a seamless manner.

Hartiadi Budi Santoso is the head of the tax practice at GNV Consulting Services. Since May 2016, 17 tax professionals have joined the practice. The firm was established in 2010. Some professionals at the firm have previously held senior positions in the Big 4 firms. GNV's professionals have more than 15 years of experience in advising clients in tax, customs and business consulting matters. Its members are involved in the Indonesian Tax Consultant Association. In May 2017, GNV became part of Moore Stephens International, a global accountancy and consultancy network. GNV's tax services include individual taxation, tax audit, dispute resolution and tax planning. Santoso has more than 26 years of tax experience. He has advised MNEs from a range of industries including manufacturing and consumer products. In 2016, the practice advised a state-owned bank in Indonesia in relation to assets-backed securities. In 2017, GNV represented a client in a tax dispute regarding VAT. GNV won the case which set a precedent concerning the VAT compensation method.

Ponti Partogi leads the tax practice at Hadiputranto, Hadinoto & Partners (HHP). The practice comprises two partners and nine other fee earners. Since 2016, Marvin Octavdio, Mulyono and Nandina Kusumaningrum have joined the practice. The practice advises clients on a range of tax issues including corporate tax, tax structuring, service tax, withholding tax, tax disputes and indirect taxes. Its clients come from various industries including the natural resources, banking and manufacturing sectors. Partogi has more than 20 years of tax experience. He advises clients on corporation tax and international tax planning matters. HHP has a good working relationship with the tax authorities including the Director General of Tax (DGT). It is also a member of Baker McKenzie's global network. This enables the practice to appropriately advise international clients regarding their operations and investments in Indonesia.

The practice is advising a digital economy MNE in establishing a subsidiary in Indonesia. HHP assisted the client with a proposed business model for the subsidiary which would comply with Indonesian tax laws and at the same time avoid the client being categorised as having a permanent establishment. HPP is advising another digital economy MNE on its tax issues with the tax authorities.

Abraham Pierre is the head of the tax practice at KPMG. The practice comprises 17 partners and 108 other fee earners. KPMG provides clients with tax advice on indirect tax, corporate tax, tax compliance and disputes. Ichwan Sukardi is the head of the energy and natural resources group while Eko Prajanto is the leader of the tax controversy and litigation group. Prajanto is supported by Tonggo Aritonang, who is a retired tax court judge. Sutedjo advises clients in financial services matters and Esther Kwok specialises in global mobility services. Jacob Zwaan is the leader of the international tax group. The practice has a global, regional and country tax capability which enables it to provide the appropriate advice to its clients.

KPMG has handled a range of tax cases in the last year. In 2016, the practice represented PT Expro Indonesia in a tax dispute concerning the rejection of credit input VAT. In the same year, Pierre and Steven Solomon provided tax structuring advice for General Atlantic. The practice is also representing PT Indo Tambang Megah Raya and Banpu in a tax dispute concerning inter-company charges from the shareholders for the fiscal year 2009.

Sugianto is the head of the tax practice at MUC Consulting Group. The practice comprises seven partners and 110 other fee earners. The firm advises clients on indirect taxation, corporate taxation, tax disputes and tax compliance. The practice hired Otto Budihardjo in 2017. Sugianto has more than 20 years of tax and accounting experience. He previously worked as a tax auditor at the tax audit and investigation office.

Prijohandojo Kristanto is the head of the tax practice at PB Taxand. The firm comprises 11 partners and 175 other fee earners. The practice develops its tax professionals through systematic training in both technical and soft skills. Kristanto has 40 years of domestic and international tax experience. He has a good working relationship with the tax authoritiy and liaises with it regarding the formulation of tax policies in Indonesia. Kristanto advises Indonesian and MNEs on international tax planning as well as M&A. He is actively involved in a number of organisations including the Indonesian Chamber of Commerce and Industry and The Employer's Association of Indonesia.

Henrietta Kristanto joined the firm in 1997 and she is the managing partner of the firm. She leads 10 partners in providing tax services to clients. These services include tax planning, corporate taxation, international taxation and tax disputes. Services are provided to clients in a variety of industries including property, manufacturing, construction and e-commerce.

In 2016, the practice advised an oil palm plantation company in a corporate tax matter. This concerned calculating the deductibility of expenses. In the same year, PB Taxand assisted a property company with a VAT matter.

The tax practice at PwC comprises 120 professionals. These professionals include accountants, lawyers and finance specialists. Some of the firm's practice members have previously worked in the judiciary, for tax authorities and in the private sector. PwC's clients include MNEs, Indonesian companies and Indonesian conglomerates. The practice offers tax advisory services, tax compliance services, dispute resolutions, indirect tax and M&A. The firm is part of PwC's global network which comprises more than 220,000 professionals in 157 countries.

Ay Tjhing Phan is the tax leader at the practice. Her tax experience includes planning, restructuring, M&A, tax due diligence investigations and dispute resolution. Alexander Lukito joined the practice in 2004 and his tax experience includes tax advisory, structuring and M&A. Rita Susanto is a senior manager with the firm. She provides tax services to clients in the oil and gas, and mining industries.

SF Consulting was established in 2004. Sri Wahyuni Sujono is the head of the tax practice at the firm. The practice comprises four partners and 120 other fee earners. The services that SF Consulting provides its clients include income tax, indirect tax, tax disputes and customs.

The firm is part of the Crowe Horwath International (CHI) network. The CHI network has 28,000 professionals in more than 100 countries.

The practice is involved in developing the tax laws in Indonesia. This includes supporting the proposed tax consultant law (TCL). The objective of the TCL is to enable tax consultants to have legal standing in tax disputes and tax criminal matters. Also, the China-ASEAN business council has appointed SF Consulting to the China-ASEAN Business Advisory Cooperation committee. This is to improve the cooperation between business advisory enterprises in China and the 10 ASEAN countries. In the last year, the practice has advised PLN (Persero) about the tax implications regarding its issuance of global bonds.

Graham Garven leads the tax practice at VDB Loi. The practice comprises four partners and 12 other fee earners. Since May 2016, the tax professionals that have joined the VDB Loi include Hendharto Oetomo, Olina Rizki Arizal, Rusmadi and M. Reza Pahlevi. All the practice members handle indirect tax, corporate tax, tax disputes and tax compliance.

Garven has 18 years of tax experience in Indonesia. He has previously worked with one of the Big 4 accounting firms in the country. His areas of expertise include dispute resolution, transactional work, structuring and M&A. In 2016, Garven advised a client that was bidding for a contract for the sea-to-land transition of a gas pipeline. The advice concerned the tax and investment structuring of the transaction. The advice in relation to the structuring issues was dependent on licensing issues and the definitions of business sectors.